Home Prices See Record Surge as Buyers Scramble to Beat Rate Hikes

The Canadian Real Estate Association said the national average home price climbed by more than 20% since 2021 to hit a record $816,720 in February, driven by exceptional growth across the country. The growth in home prices has come as people flocked to suburbs and rural regions to buy more spacious homes they could work remotely from, but that has also not dampened demand in the Greater Vancouver and Toronto areas.

Highlights from the release include:

  • National home sales rose 4.6% on a month-over-month basis in February.
  • Actual (not seasonally adjusted) monthly activity came in 8.2% below the record February in 2021.
  • The number of newly listed properties bounced back by 23.7% month-over-month.
  • The MLS® Home Price Index (HPI) rose a record 3.5% month-over-month and was up a record 29.2% year-over-year.
  • The actual (not seasonally adjusted) national average sale price posted a 20.6% year-over-year gain in February.

The average price excluding two of the most expensive and active markets in the country drops by about $178,000 but it still increased 21% to $638,958, from $589,490 a year ago. The steep price increases offered a window into a heated real estate market that has seen the cost of buying a home soar, even over the course of the COVID-19 pandemic.

Robert Kavcic, BMO Capital Markets’ senior economist, pointed out that the aggregate composite home price index was up 3.5% on a year-over-year basis in February, the strongest monthly gain on record. “That blows through the pace seen a year ago, and also the fastest clip [since] the early-2017 period,” he said in a note to investors. “Prices are going parabolic at a near-50% annualized clip, expectations have rooted, investors are driving most of the incremental demand, and Canadians are buying pre-sale condos halfway across the country.”

In recent months, prices have been driven upward by fierce bidding wars coupled with a lack of homes being listed as people wait for the lifting of pandemic restrictions and fear of not finding another affordable place to live when their property sells. “Not everybody has access to unlimited money,” Youngren said. “Not everybody has access to just pay whatever number … and be prepared with cash or financial support from family or whatever.”

CREA predicts the national average home price will reach $786,000 in 2022, up 14.3% from $687,873 in 2021. It expects the average to rise to $810,934 in 2023.

The full-year numbers are lower than the February average because they account for seasonal and regional trends, and CREA believes the current pace of price gains is likely temporary. CREA predicted in December that prices would hit an average $739,495 this year, but upped its forecast to reflect an “unprecedented imbalance” of housing supply and demand. It has cautioned that the forecasts are “conservative” given recent surges in prices.

The association also detected a rebound in new listings, which climbed by more than 23% on a seasonally-adjusted basis to 77,352 in February from 62,539 in January. On a non-seasonally-adjusted basis, listings reached 69,744, a roughly 1% hike from 68,981 in February 2021.

CREA said the jump in new listings could be the beginning of a trend. “Combined with higher interest rates and higher prices, we could be at a turning point where price growth begins to slow down and easing the competition among buyers,” Shaun Cathcart, CREA’s senior economist said in a news release.

The change of course being seen in new listings came as seasonally-adjusted home sales in February ticked up by 4.6% to 58,209 last month from 55,654 in January. Non-seasonally-adjusted sales totalled 49,403 in February, a more than 8% fall from 53,806 during the same month last year.

CREA believes national home sales for the full year will drop 8% from 2021 to 612,800 and then edge back a further 2.7% to 596,150 in 2023 — still the third-best year on record. It expects this easing to be most prominent in British Columbia, Ontario and Quebec and thinks Alberta and Saskatchewan will buck the trend with moderate sales gains in 2023.

The sharp spike in home prices, along with higher inflation and the spectre of even higher mortgage rates, could dissuade would-be home buyers. “When you see everything going up so quickly it’s, like, hold on, wait a minute, slow down and re-evaluate what’s happening,” said Samantha Brookes, CEO of Mortgages of Canada. “People are in that really re-evaluating mode right now.”

Source: Financial Post
Source: Globe and Mail
Source: The Star
Source: CREA

Annual Pace of Canadian Housing Starts Rises in February, Up 8% From January

Canada Mortgage and Housing Corp. says the annual pace of housing starts in February rose 8% compared with January. The national housing agency says the seasonally adjusted rate of housing starts came in at 247,256 units for February, up from 229,185 in January.

The overall increase came as the pace of urban starts rose 10% to 222,563. The annual rate of urban starts of apartments, condos and other types of multiple-unit housing project gained 13% to come in at 161,912, while single-detached urban starts increased 2% to finish at 60,651. CMHC estimated rural starts at a seasonally adjusted annual rate of 24,693 units.

The six-month moving average of the monthly seasonally adjusted annual rates of housing starts was 251,579 in February, down from 253,864 in January.

CMHC chief economist Bob Dugan noted that Toronto was the only market among Canada’s three largest cities to see growth in housing starts, largely driven by condo and multi-unit starts. Following a backlog in construction projects and labour shortages that brought some developments to a halt, Toronto had a 195% growth in total property housing starts to 65,763.

Dugan told the Financial Post that while the housing starts were strong, Canada is still falling behind other G7 countries when it comes to housing stock per capita. “I would argue that the strong level of housing starts we’re seeing aren’t strong enough and they have to continue (to grow) if we’re going to chip away at that gap that exists between our housing stock and that of some other countries,” Dugan said, adding that there will be renewed demand from new family formation and immigrants arriving into Canada. “We need to catch up in order to restore housing affordability.”

Some of the headwinds to housing construction Dugan pointed to included the snarls in the supply chain for housing materials made worse during economic shutdowns and labour shortages that have existed even before the pandemic. He anticipates that as the economy reopens, the global supply chain may start to see some relief. While recent jobs numbers gave Dugan reason for optimism, he said construction headwinds and added challenges to housing affordability in a high-inflation environment leave him concerned. “All these headwinds make me worry even more so about the need to really get active on supply and get the job done,” he said.

Source: Globe and Mail
Source: The Star
Source: Financial Post
Source: CHMC

Canada’s Housing Boom Has Been Unprecedented; the Fallout Will Be Too

Most agree that Canada’s housing boom during the pandemic has been unprecedented. Low interest rates, pandemic shifts in homebuyers’ preferences, excess household savings, ever higher price expectations and speculators and investors piling in have worked together to send home prices 50% above pre-pandemic levels as of February.

Now Oxford Economics argues that the aftermath of this boom will be unparalleled too. In a report that goes beyond other forecasts of a cooling market, Tony Stillo, director of Canada Economics at Oxford, predicts that a housing correction beginning this autumn will see home prices decline 24% by mid-2024.

Oxford sees three triggers for the correction. First, and perhaps foremost, is the market itself. By late 2021, home prices were 19% beyond the borrowing capacity of median-income households in Canada, the report says, and the gains since then have just made it worse. Oxford expects by mid-year home prices will be an unprecedented 38% above what the average household can afford. “We believe this will cause the housing market to reach a breaking point and crash under the weight of its own success before year end,” Stillo said in the report.

Second is higher borrowing rates. The Bank of Canada began its hiking cycle with a 25 basis-point increase earlier this month. Oxford expects a cautious path with three more hikes this year, a pause to assess the economy, and then gradual increases that will lift the rate to 2% by mid-2024. Fixed-rate five-year mortgage rates are expected to rise to 4.25% by the end of this year and then climb gradually to 5% later in the decade.

The third trigger is new government housing policies. Some of the proposed national initiatives in the pipeline include a house-flipping tax, temporary ban on foreign ownership and a tax on non-resident-owned vacant homes.

A 24% drop in home prices sounds scary, and in normal times it would be. But it would still leave prices 15% higher than before the pandemic, and lead to a healthier market, argues Oxford.

Home builders should have enough incentive to keep building and with a new government focus on increasing the housing supply, 2.35 million new units could be constructed this decade, outpacing the projected 1.9 million new households in Canada by 2030. If that happens, Oxford forecasts home price growth would slow to about 0.7% a year between 2025 and 2030, less than inflation and income gains, gradually bringing homes back to a price Canadians can afford.

There are risks. While a 24% fall in home prices will knock near-term economic growth, it is unlikely to cause a recession or stress the financial system, said Oxford, though it adds that can’t be entirely ruled out.

However, if home prices continue to rise at the pace they have been there is a growing risk that prices won’t just correct, they will crash, the economists said. “Although unlikely, a crash could see home prices plummet by 40% or more, with dire consequences for the broader economy and financial system,” Stillo wrote. “The fallout from a housing crash would look a lot like the U.S. housing meltdown during the global financial crisis, despite a minimal role for subprime lending in Canada.”

Source: Financial Post

Fewer Canadians Thinking of Buying a Home as Inflation Takes Hold

Could the homebuyer frenzy seen during the pandemic be winding down? Fewer Canadians intend to purchase a home in the near future compared to the last two years of the pandemic, according to a home ownership report released by RBC, with many concerned about how rising inflation will affect their ability to secure a home.

As Canadians transition into a post-pandemic mindset, home-buying attitudes are shifting. According to the annual poll, which surveyed 2,753 Canadians in January 2022, some 23% of respondents said they intend to purchase a home in the next two years, compared to 30% in 2021. That’s more in line with attitudes seen in January 2020, when 22% intended to buy. 

Andrea Metrick, senior director of home equity financing, acquisition and distribution at RBC, says Canadians may be taking a step back due to rising costs, along with the competitiveness of the market. Nationally, the year-over-year percentage change in the MLS home price composite index skyrocketed to more than 29% in February 2022 — the highest year-over-year growth in at least 16 years.

The RBC survey also found that 48% of respondents were worried about the impact rising inflation will have on their ability to purchase a home. Four in 10 respondents said they felt “financially overwhelmed,” while 42% were worried their financial situation would deteriorate over the next year.

“The key stressor for these homebuyers is affordability,” said Metrick. “And they’re really asking themselves a couple of key questions around affordability: Firstly, what will I be able to afford? Secondly, when will I be able to afford it? And third, where will I be able to afford it?” These questions around affordability, especially as Canadians emerge from the pandemic, are creating a level of uncertainty for homebuyers, thus affecting market interest, Metrick added.

Frank Clayton, a senior research fellow at Ryerson University focusing on urban and real estate market issues, also says homebuyers are starting to realize that prices don’t go up continually all the time and are now starting to wait until the market is more affordable. “There was this euphoria in the market the last couple of years where people thought, ‘If I don’t get in today, I’m going to lose out because I won’t be able to afford tomorrow,’” he said. “But I think more people are starting to say ‘We can’t afford it, so let’s just hold off.’”

Tom Storey, a sales representative with Royal LePage Signature Realty, says rising interest rates is another reason why Canadians are holding off purchasing a house right now. “That would be the biggest psychological factor at least in terms of what people are thinking about,” he said. “Especially with what the reports of inflation are, the Bank of Canada is going to have to raise the rates a few more times to battle inflation.”

The report also found that one in four respondents said housing prices have impacted major milestones in their life. Of those, 47% said thinking about buying or saving for a home is causing stress in their relationships, while three in 10 said they will need to live with their parents longer in order to save enough to purchase a home.

“It’s never been not stressful to buy a property. But especially so, when you combine that with where prices have gone in the last two years of the pandemic,” said Storey.

Source: The Star